Massachusetts Noncompete Law : Massachusetts Noncompete Lawyer & Attorney : Foley Hoag Law Firm : Non-competition Agreements, Labor & Employment

This decision by a federal judge in Massachusetts enforcing a non-competition agreement is notable for at least two reasons: (1) it presents yet another example of a court in Massachusetts rejecting an argument that California law should govern a non-compete dispute, and (2) it contains an interesting discussion of the hiring company’s substantial but unsuccessful effort to avoid the noncompete by taking steps to ensure that the new employee protected the confidential information of his previous employer. 

The case, Aspect Software, Inc. v. Gary Barnett, involved an executive vice-president and chief technology officer at a technology company who left to take on a similar role at a clearly competitive company. The plaintiff and former employer, Aspect, is a Massachusetts-based company. While employment by Aspect, the defendant employee, Barnett, was based in Tennessee and Massachusetts. The new employer, Avaya, is based in California. Just before joining Avaya, Barnett moved his residence to California. 

Not surprisingly, the non-compete at issue contained a choice of law provision dictating that Massachusetts law would apply to any dispute between the parties. Notwithstanding that provision, Barnett and Avaya argued that California law – which prohibits non-competition agreements except in very limited instances not applicable here – should apply to the dispute. Judge Denise Casper (who happens to be the newest judge on the U.S. District Court in Boston) rejected that argument. Citing well-established principles that a choice of law provision should be overridden only where another state’s interest in the dispute is greater than the agreed-upon state’s interest, Judge Casper found that California’s interest was either weaker than or at best equal to Massachusetts’ interest. In particular, she found that California’s interest in pursuing its policy against non-competes would not materially outweigh Massachusetts’ interest in ensuring that its contracts are enforced. She therefore applied Massachusetts law to the substantive question of whether the non-compete should be enforced.

On that fundamental issue, the most interesting aspect of the analysis (in my view) relates to the unusually careful attempt by Barnett and his new employer to ensure that Barnett would not use or disclose any of Aspect’s confidential information in his new position.  One can infer that they decided that taking these steps would improve their chances in court in the event that Aspect sought to enforce the noncompete.  It was undisputed that Barnett turned off his company issued Blackberry immediately after tendering his resignation, left his laptop in his office, boxed all of his Aspect property and made arrangements for Aspect to retrieve the boxes. There was no allegation that he retained any of that information or used it in his new position. In addition, Avaya included language in its employment offer and separately in Barnett’s employment agreement making very clear that Barnett was not to use or disclose any Aspect information in his new position. On top of that, Barnett’s new boss at Avaya sent him an email that provided a list of “ground rules” that Barnett was expected to follow in order to ensure that Aspect’s trade secrets and other information were not used by Barnett in his new role. 

Despite these efforts, Judge Casper sided with Aspect and granted it the requested preliminary injunction. The judge acknowledged the “scrupulousness” of Barnett’s and Avaya’s efforts and credited the “sincerity” of their intent. Yet, she found that given the extent of Barnett’s experience at Aspect and the similarity between his positions at Aspect and at Avaya, it was difficult to conceive how all of the information stored in Barnett’s memory could be set aside as he applied himself to a competitor’s business. Thus, summing up the analysis, Judge Casper stated, “even taking into account Barnett’s and Avaya’s commendable efforts to protect the integrity of Aspect’s trade secrets, Aspect has carried its burden of establishing a significant risk of irreparable harm.” She therefore granted the injunction stopping Barnett's work at Avaya.

The take-away?  Even the most proactive and careful hiring efforts will not avoid enforcement of a noncompete if all of the required legal factors line up in favor of the former employer. 

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An increasingly common scenario in the world of noncompete enforcement is the so-called “race to the courthouse,” where parallel actions are brought in separate jurisdictions about the same dispute. In one case, the former employer seeks enforcement of the noncompete. In the other, the employee and his or her new employer seek an order declaring that the noncompete is unenforceable. Many of these situations involve California as the location of the new employer. Upon hiring the employee, the California-based employer will immediately seek a “declaration” from a California state court judge (these are called “declaratory judgment” actions) that the non-competition provision is unenforceable under California law and therefore it is okay to hire the employee. The advantage of this approach is that California precedent supports a holding that would disregard the law of the state in which the employee previously worked, even if the contract contained a provision (a “choice of law” clause) stating that a particular state’s law would apply to disputes under the contract.

Often in these instances, it will be argued that the dispute should be adjudicated in the court where the first lawsuit was filed. This is sometimes called the “first filed” rule, and Massachusetts courts generally have followed it. Thus, we get a “race to the courthouse”: the party that files first gets to dictate what court will decide the dispute.

I mention all of this as background for discussion of a Massachusetts case,Ethicon Endo-Surgery, Inc. v. Pemberton and Intuitive Surgical, Inc., decided in late 2010 (but only recently brought to my attention), in which Judge Lauriat of the Superior Court’s Business Litigation Session had occasion to consider the “first filed” rule in the context of a non-compete dispute with some connection to Massachusetts, California, Ohio, New Jersey, New Hampshire and Maine.

The employee, Pemberton, had been employed by Ethicon Endo-Surgery (EES), an Ohio-based medical device company that is a subsidiary of Johnson & Johnson, a New Jersey company. Pemberton was involved first in sales and then later in educational/training activities for EES customers. He worked in northern MA, NH and Maine. He left EES in October, 2010 and was hired by Intuitive Surgical, a Delaware corporation with a principal place of business in California, where he was to be a sales manager based in the Boston area.

On his last day, Pemberton told EES he was going to work for Intuitive. The next day, Intuitive and Pemberton served EES with a California-based declaratory judgment action. Four days later, EES sued in Massachusetts state court to enforce Pemberton’s 18-month non-competition restriction.

Not surprisingly, Pemberton and Intuitive argued that the “first filed” rule required dismissal of the Massachusetts case, with the expectation that the California court would invalidate the noncompete. But based on the facts of the case, Judge Lauriat was not willing to follow that rule. As it turned out, Pemberton gave EES more than a month of notice of his departure, but he didn’t say where he was going and told EES he was still “working out the details.” He informed EES that he was going to Intuitive only on his last day of work. Meanwhile, unbeknownst to EES, weeks before his last day, Pemberton already had signed an offer letter from Intuitive and he and Intuitive already had filed a declaratory judgment action in California. They simply waited to serve the papers on EES until the day after Pemberton’s last day of work at EES.

Judge Lauriat stated that he could “not condone Intuitive’s behavior” by applying the first-filed rule. He noted that that the situation could not even be called a “race to the courthouse,” because EES didn’t even know there was a race until Intuitive and Pemberton “had already crossed the finish line and hoisted the trophy.”

So, Judge Lauriat kept the case and decided EES’s preliminary injunction motion on the merits. He rejected Intuitive’s argument that California law should trump the parties’ choice of New Jersey law in the contract, finding that either New Jersey or Massachusetts had an equal or greater interest in the dispute given the contacts with those states. He then gave short shrift to Pemberton’s argument that the companies were not competitors. He did find that the nationwide scope of the restriction was too broad, and scaled it back to Maine, New Hampshire and Massachusetts. Finally, in balancing the equities/hardships for each party, Judge Lauriat was swayed by the fact that the contract required that EES would compensate Pemberton for every month in which he could not work due to the non-competition agreement. The fact that Pemberton could have made more money at Intuitive did not change the judge’s view.

Injunction granted, despite the employee’s and new employer’s best laid plans to take advantage of California law.

The lesson? Massachusetts courts are not going to be willing to defer to a California court in a non-compete case where it appears to the judge that the parties engaged in subterfuge or manipulation to get a case filed in that state.

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This decision from the United States District Court in Boston, denying a request for a preliminary injunction to enforce non-competition and other restrictive covenants, is notable for a few reasons. First, the federal court in Massachusetts issues relatively few decisions involving requests to enforce noncompete and/or nonsolicitation agreements; a published decision from a federal judge -- in this case from Judge George A. O’Toole, Jr. -- is inherently of interest. More importantly, the decision, Maine Pointe, LLC v. Starr and Gestion Velocitas, Inc., addresses several procedural and substantive issues that arise with regularity in the world of noncompete litigation.

The plaintiff, Maine Pointe, filed suit and immediately sought to enjoin competitive activities by its former consultant, Peter Starr, a Canadian who operated through his own company, Gestion Velocitas (also sued as a defendant).  The restrictive covenants at issue were in an agreement between Maine Pointe and the Starr’s company, but not with Starr himself (although he signed for the company). 

The defendants sought to derail the injunction request first by raising a procedural barrier: that the court lacked jurisdiction to hear the case, because Starr and his company were based in Canada and never engaged in sales or other activities in Massachusetts. Maine Pointe responded by pointing to a provision in the agreement stating that Massachusetts law would apply and that litigation relating to the agreement would occur exclusively in Massachusetts. Judge O’Toole did not fully decide the jurisdictional issue, but stated that he was sufficiently doubtful about the court’s jurisdiction over Starr -- notwithstanding the forum selection provision -- that he would deny the injunction request against Starr on that basis alone. The lesson for employers seeking to enforce noncompetes? Be sure that you have a strong basis for suing in the particular court you choose. Creating judicial doubt about jurisdiction is a sure way to take the wind out of the sails of your injunction request.

Judge O’Toole also denied the injunction request against the company defendant, this time on substantive grounds. Maine Pointe’s main complaint was that the defendants had violated the non-disclosure and non-solicitation restrictions by soliciting business from two entities they previously solicited -- unsuccessfully -- while engaged by Maine Pointe. Judge O’Toole was unconvinced. He found that the evidence did not sufficiently demonstrate that the contact information defendants used to contact the prospective customers was protected “trade secrets” or “confidential information,” noting that Massachusetts courts in previous cases had held that “general information and routine data” of a company is not protectable. As to the non-solicitation issue, Judge O’Toole found that there was no legitimate interest justifying enforcement of the restriction, because there was no evidence that defendants developed any meaningful relationship with these entities -- that is, "good will" -- while engaged by Maine Pointe. 

As a result, Judge O'Toole refused to give Maine Pointe any of the relief it sought.

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